Sectional mortgage bond requirements

Until recently, the requirements with which a sectional mortgage bond must comply in order to be registerable have not been an issue that warrants any debate. However, certain financial institutions have recently adapted their Sectional Mortgage Forms in order to cater for certain specific objectives. These objectives invariably relate to issues of whether the relevant bond is intended to be collateral or a covering or a surety bond. These adaptations, regrettably, have resulted in rejections in a certain deeds registry. The primary reason for the rejections has been that the relevant sectional mortgage bonds does not conform to Form Z of the Sectional Titles Act.

The question that then arises is: When is a sectional mortgage bond registerable?

In this regard, regulation 34 of the Sectional Titles Act is instructive. This regulation provides as follows:
A sectional mortgage bond hypothecating a unit held under a sectional title deed or an exclusive use area or the right to extend a scheme held under a certificate of real right, shall be substantially in the form of Form Z in Annexure 1, and shall be prepared by a conveyancer and be signed by the mortgagor, or his duly authorized agent, in the presence of a conveyancer, and the said form shall be suitably adapted when hypothecating land held under a sectional title deed or a registered notarial lease or sub-lease or other registered real right.

It is imperative, at this stage, to analyse Form Z before dealing with what constitutes substantial compliance therewith. This form requires the disclosure of the acknowledgement of indebtedness by the mortgagor to the mortgagee and the extent thereof, the disclosure of the ranking of the bond in question, the disclosure of the security under the bond, and the disclosure of the execution clause. Thus, a bond that is substantially in Form Z must contain these minimum requirements. Thus, the mere fact that a bond contains information relating to it being a surety bond does not necessarily render it unfit for Form Z, if it contains the requirements referred to above.

Republished with permission from SA Deeds Journal